Nippon Steel Corp and Tata Steel are in talks to collaborate on a $423-million plant to cater exclusively to the booming Indian auto industry.
KOLKATA: Nippon Steel Corp, Japan, the second-largest steel maker in the world, and Tata Steel, the fifth-largest (post the Corus takeover), are in talks to collaborate on a $423-million plant to cater exclusively to the booming Indian auto industry.
In a consolidation different from M&As in vogue in the global steel industry, the two companies are exploring the possibility of setting up a 1 million tonne per annum (mtpa) plant to manufacture auto grade steel for the Indian auto sector.
Nippon Steel will be the first Japanese steel producer to enter India and it is seen as a corollary to the plans of Japanese auto makers like Toyota, Suzuki and Honda to expand operations in the country, both domestically and as export hubs.
A Tata Steel spokesperson confirmed talks between the two companies.
“Tata Steel and Nippon Steel have relationships that go back decades. Nippon Steel has collaborated with us for our cold-rolled mills and is involved in logistical planning for Tata Steel’s Orissa project,” the spokesperson said.
“The auto grade steel plant will be a joint venture between Tata Steel and Nippon Steel, but it is too early to comment on shareholdings or even the location of the project,” the spokesperson said.
Tata Steel and Nippon Steel already have a technical agreement for the production of cold-rolled automotive steel. Details on the contours of the possible Nippon-Tata collaboration are still not available.
Industry sources, however, reckon that the proposed plant will combine Nippon Steel’s proprietary technology for auto grade steel with low-cost steel slab produced by Tata Steel at its Jamshedpur plant.
Since the Nippon-Tata unit is planned to go on stream in 2010, Tata Steel slabs would also be available by then from the latter’s greenfield units, currently under way in Orissa and Jharkhand.
The current total size of the Indian auto grade steel market is estimated at 2.2 million tonnes, of which Tata Steel has a commanding market share of over 41%, while demand for about 0.35 million tonnes is met through imports.
But the market for auto grade steel is forecast to rise rapidly in tandem with the booming Indian auto sector, which has recorded double-digit growths for the past three consecutive years.
According to a KPMG report, the Indian auto sector is growing at a compounded annual growth rate of 14.2% and investments to the tune of $5.7 billion is expected between 2005 and 2010.
In 2006, the auto industry produced 10.9 million units, up 16.22% from the previous year, while the passenger car segment produced 1.3 million cars in 2006, up 19%.
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